Global Political Economy (PDF)

GLOBAL POLITICAL ECONOMY WORLD ECONOMY M.Teresa Aceytuno University of Huelva SUMMARY p The World Economy Pre-1914. p The World Economy in the Inter-War Period. p The World Economy Post-1945. p The World Economy: Globalization p The Breakdown: Global Financial Crisis p The World Econ...

GLOBAL POLITICAL ECONOMY WORLD ECONOMY M.Teresa Aceytuno University of Huelva SUMMARY p The World Economy Pre-1914. p The World Economy in the Inter-War Period. p The World Economy Post-1945. p The World Economy: Globalization p The Breakdown: Global Financial Crisis p The World Economy between Great Recession and Great Lockdown p The Great Lockdown The World Economy Pre-1914 The modern world economy came into Mercantilism: Wealth=power. existence in the fifteenth Not notable increase in overall global wealth. and sixteenth centuries: Industrialized countries (Western Europe, USA and Japan) vs Rest of world. Traditional pattern of Importance of trade with colonies instead of other commerce: industrialized countries. Tariffs as barrier to international trade. No intergovernmental cooperation: Bilateral agreements. Certainty for international transactions Gold standard: Adjusting mechanism: internal deflation. The World Economy in the Inter-War Period IWW effects: Devastation in European economies. Political instability: War reparations (Germany) and wartime borrowings (France and UK). Inability of governments to construct a viable international financial system. Restoration of the Gold Standard (1925): Misalignment of exchange rates. The subordination of the domestic economies to global markets was no longer acceptable. Abandonment in 1931. Tariffs rise (from 1930). Decline of world trade. Concentration in closed imperial blocks. Incapacity of the League of Nations. The World Economy Post-1945 p Unprecedented rates of economic growth n GDP grew at a faster rate than before 1945 n World trade grew more rapidly than world production Ø Increasing importance of imports and exports in most economies, which led to greater political support for liberalization p Characterized by: n Embedded liberalism n Multilateralism World Economy: Post-1945 (2) p Embedded liberalism (Ruggie, 1992) n Compromise between meeting domestic economic objectives and openness to international trade and investment n Provisions to opt-out of international commitments in trade and finance embodied in IMF and GATT World Economy: Post-1945 (3) p Multilateralism n Institutionalization of international economic cooperation p Bretton Woods institutions (IMF, World Bank) n ‘generalized’ principles of conduct p E.g. most-favoured nation (MFN) principle World Economy: Globalization p Key features: n Growing interdependence of countries n Importance of global trade to economic growth n Globalization of production networks n Globalization of finance and complexity of new financial instruments n Vulnerability of global financial systems to periodic crises n Increasing significance of private actors in the global economy World Economy: Globalization p Growing influence and importance of transnational corporations (TNCs) n Companies with ownership and management of assets in more than one country for the purposes of production of goods or services n By 2009, value added by TNC subsidiaries amounted to 10% of world GDP n Sales by TNC subsidiaries are twice total value of world trade n Integration of developing countries into global production networks (or global supply chains) The breakdown: Global Financial Crisis Effects all around the Bankruptcy of Lehman Important differences world: Global Financial Brothers on 15 between countries and Crisis or Great September 2008. regions. Recession. Massive sell-off of World output fell by EU: -4%; USA: -3.2% shares in Wall Street. 0.8% in 2009 China and India: 8.7 4.4%fall of Dow Jones FDI fell by 40% in and 5.6% Index. 2009. Global Financial Crisis Origin of LB problems: involvement in the subrpime mortgage market. Quickly transmission to financial institutions in other advanced countries and to real economy: Increase in 65 banks bailed Slowdown in Raw materials’ million of people Lending cut. living in poverty out. production. price fall (World Bank estimations) Global Financial Crisis Policy responses to the Sovereign debt crisis: crisis. Bail-outs: transfer of risk Emergence of the G20. from private to public. Revitalization of IMF Cost of stimulus packages. Avoiding protectionist Budget deficit/GDP about policies (Great Depression)- 10% in 2009; 8.5% in at least until 2013. 2010. More than 100%of public debt/GDP. Important problems for Southern and Eastern Europe. The Global Financial Crisis p Lessons from the crisis: n Growing interdependence of countries. n Vulnerability of the contemporary global financial system to periodic crisis. n Speed of problems transmission. n Collaboration between governments to seek collaboration. n Significant and evolving role of international institutions. n Impact on poverty and inequality. The World Economy between the Great Recession and the Great Lockdown The World Economy between the Great Recession and the Great Lockdown The World Economy between the Great Recession and the Great Lockdown p Slow recovery of world output. p Problems in world trade: Protectionism n The long-running trade dispute between the United States and China n Other factors p the government shutdown in the United States in 2018-19, p the United Kingdom’s departure from the European Union, and p changes in monetary policy in major economies (e.g. Raising tariffs The Great Lockdown p Spread of coronavirus pandemic at the begining of 2020 p Great Lockdown: quarantines and social distance practices to contain the virus p A crisis like no other: a health crisis, a financial crisis, and a collapse in commodity prices, which interact in complex ways p Unprecedented support to households, firms, and financial markets p About 6-7% GDP loss War in Ukraine and current trends p Russia invades Ukraine in February 2022. p A tentative recovery in 2021 has been followed by increasingly gloomy developments in 2022 as risks began to materialize. n Global output contracted in the second quarter of this year: p downturns in China and Russia p US consumer spending undershot expectations n Several shocks have hit a world economy already weakened by the pandemic: p higher-than-expected inflation worldwide––especially in the United States and major European economies––triggering tighter financial conditions; p a worse-than-anticipated slowdown in China, reflecting COVID- 19 outbreaks and lockdowns; p and further negative spillovers from the war in Ukraine. War in Ukraine and current trends War in Ukraine and current trends REFERENCES p Ravenhill. J. (2014): Global Political Economy, Oxford University Press, chapter 1. p Gilpin, R. (2001): Global Political Economy, Princeton University Press, chapter 4. p WTO website: https://www.wto.org/ p IMF website: https://www.imf.org